Hedge fund manager faces large tax bill after appeal fails

EMINENT HEDGE FUND MANAGER Patrick Degorce is facing an £8m tax bill after a tribunal upheld findings that he had sought to shelter millions in a tax avoidance scheme which invested in several films.

Degorce is chief investment officer at Theleme Partners and is well-known for co-founding The Children’s Investment Fund along with Sir Chris Hohn.

HM Revenue & Customs argued Degorce and eleven other investors using the scheme involved had the primary aim of generating artificial income tax losses.

HMRC first became aware of the arrangement after investigating Degorce’s income tax return for the year 2006/07, and alleged he had sought to offset his hedge fund’s profits through a film scheme promoted by Goldcrest Pictures.

Degorce purchased the rights to two films – Tropic Thunder, produced and directed by Ben Stiller (pictured) and Love Guru, written by Mike Myers – for an inflated figure of £21.9m, but paid just £4.8m of his own money.

HMRC said he then sold back the rights to Goldcrest for a hugely discounted rate, claiming the difference was a trading loss.

The tax authority argued the activity did not amount to genuine trading, something the tribunal upheld.

Dismissing the appeal, Justice Hildyard said Degorce was advised that the likelihood was that “he would suffer a significant loss in his first accounting period which would, it was expected, entitle him to claim relief against the tax due on his income for the 2006/07 tax year, which was forecast to be about £19m”.